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Chenggang Xu is a senior research scholar at the Stanford Center on China’s Economic and Institutions. A 2011 paper analyzing how China’s institutions shaped the trajectory of China’s economic reforms won him China’s top economics prize. His new book, Institutional Genes: Origins of China’s Institutions and Totalitarianism, is out August 31. It’s a work he says encapsulates over half a century of his thinking on the totalitarian nature of communism, a research topic he began pursuing in the Cultural Revolution, during which he was sent to a labor camp. The following is an edited transcript of our recent conversation.

Q: Let’s start with a broad question: what is totalitarianism, and why do you make the choice of calling China totalitarian rather than just authoritarian?

A: Totalitarianism is a modern ideology and institution where you have a party that controls everything in society. That’s the differentiating feature. When you look at history, there are some extreme autocracies. But the reason I emphasize that totalitarianism is a modern institution is because historically, even in the extreme type of autocracy, there was no party. The totalitarian party is a modern institution. The first of this kind of institution was the Leninist Bolsheviks.

The reason I believe that it’s the correct way to describe China is because the Chinese institution is based upon the Chinese Communist Party, a Leninist party. It controls everything in society. The CCP has itself proclaimed that the Party leads everything, which is the definition of totalitarianism.

How does totalitarianism work in the specific Chinese context?

Regionally Administered Totalitarianism (RADT) is the term I use to describe the Chinese institution. Sometimes I also refer to it as totalitarianism with Chinese characteristics.

In a totalitarian regime, the implication is that the Party controls everything. It’s top-down. It’s highly centralized. That is true in the case of China. In terms of political control, personnel control, ideological control, in those aspects it is highly centralized and top-down.

However, for detailed administrative functions and resource allocation, those are delegated to the local authorities. The Chinese economy is controlled by several levels of sub-national authorities. Below the central authority, there is a provincial level, city level, and county level, and further down, in the countryside you have townships and in cities you have neighborhoods. All of the detailed administrative functions and resource allocation are distributed at all of these levels.

This particular feature makes the totalitarian regime in China more flexible, more adaptable, and more resilient. Understanding this particular type of totalitarian regime is important for our understanding of the Chinese economic reforms in particular.

How have you seen this totalitarianism change over the course of the history of the People’s Republic of China? Has it always been as strong as it is, or has there been waxing and waning?

To understand where RADT comes from, we have to look at history. During the civil war, the CCP spread out to different parts of the country, and there were many so-called liberated areas, and those liberated areas were already a type of RADT regime.

The policies of the CCP are only strategic goals. They have an aim, but there is no detail. All the details, how to implement, how to facilitate, how to realize, have to be discovered by regions through regional competition.

But in 1950, after taking over the whole country, they started to centralize in order to create a Soviet-type regime. The centralization went very far, and by 1957 with the aid of the USSR, China basically established a Soviet-type regime. So the Chinese institution is a replica of the USSR.

Then, in 1958, there was a huge effort to change the regime back to RADT, with the Great Leap Forward. There is a huge amount of literature about what happened and about the Great Famine it caused, but here my emphasis is about the changing of institutions during the Great Leap Forward. During that movement, within just a few months, huge amounts of state assets and administrative authorities were delegated from the central authorities, from the executive ministries, down to all levels of the local authorities — the provinces, the cities, the counties.

In 1966, the Cultural Revolution began, which further strengthened RADT. At the peak of the Cultural Revolution, the central ministries all collapsed, but the Chinese economy didn’t. The reason that the Chinese economy could still operate and there was no famine like there was during the Great Leap Forward was because the administrative functions and resources had been delegated to local authorities, first during the Great Leap Forward and then further during the Cultural Revolution.

By the end of the Cultural Revolution, RADT had been consolidated, so almost all of the Chinese counties had become self-sufficient units. That laid down the foundation for the later economic reforms, which started right after the end of the Cultural Revolution.

Let’s introduce the core concept and title of your new book, institutional genes. Can you define it?

Institutional genes is an analytical framework for understanding path dependence. Path dependence theory is an existing concept which claims that institutional changes are not arbitrary. Things cannot simply change in the way that people want it to change, if the path does not allow you to go in that particular direction. History matters.

But here the question is, why are institutional changes path dependent? What is the mechanism that makes institutional changes path dependent? To understand this, we have to open up the black box of path dependence, and we have to look at the institutional changes from the micro level. We have to disaggregate institutional changes into smaller and more basic elements.

So here, I regard the basic elements of institutions as what I call “institutional genes”. I also define institutional genes with three characteristics. Number one, institutional genes are the basic elements of institutions. Number two, institutional genes are going to appear in history again and again — they are produced and reproduced, and they are going to repeat throughout history. Number three, institutional genes are intimately related to the interests of the players involved in institutional changes; put in another way, these elements are incentive-compatible with the players in institutional changes. This last characteristic explains why institutional genes repeat throughout history, because it is in the fundamental interests of the players who push institutional changes to reproduce them.

How do you apply the framework of ‘institutional genes’ to China and why it became totalitarian?

The way I describe institutional genes is a little bit abstract. If we want to see what the concrete examples or concrete aspects of institutional genes are, those are going to be the distribution of property rights, the distribution of political power, and the social consensus corresponding to the structures of power and property rights.

If we apply this concept to China, then we see that in the 2,000 years of imperial China, property rights were highly concentrated, and power was highly concentrated, with an associated ideology, namely Confucianism, where the core of that ideology is the hierarchical structure of society. That ideology claims that everyone has to find their place in the hierarchy, and you must obey your boss without condition.

Within that tradition in Chinese society, there was no concept of human rights. There was no concept of property rights. (Here, I define property rights as the final control rights of assets, not a bundle of rights.) Highly concentrated political power and highly concentrated property rights and the corresponding social consensus under that kind of situation made the Chinese institutional genes pretty much ready for transformation into a totalitarian regime.

When I decomposed the institutions of totalitarianism, in particular the USSR, I found three elements of its institutional genes. These three elements are the Tsarist imperial institution, the secretive political institutions, and the Russian Orthodox Church. Among these three elements, the first two are shared by China.

The Chinese had imperial institutional history and secretive political institutions, or secret societies. The only thing missing was the Orthodox Church, but that can be supplemented by an outside force. And indeed it was the Communist International (Comintern) that played an essential role in China, replacing the Orthodox Church. They were the missionary agency of the Communist regime, and they built the CCP as their branch. That is the way the Communist institution was created in China.

Actually, Comintern was created for a global revolution, and they pushed communism everywhere, not just in China. Their priority was in Western Europe and Central Europe, but they failed there. Their only big success was in China, because the institutional genes in China fit with totalitarianism.

Earlier you mentioned that RADT is more flexible and has given the Chinese regime more leeway to adapt. Can you talk more about that?

The RADT regime created during the Civil War and the Great Leap Forward and Cultural Revolution is the institutional foundation for the economic reforms. During the reforms, this kind of institution allowed the central authorities to launch regional competition. That part is particularly important in enabling the CCP to go as far as they did.

Every region is self-sufficient in this regime, while the political authority, the personnel matters, and the ideology are all highly centralized. So the central authority is in the position to lead, to tell the local authorities what to do. The strategic decisions have been made by the central authorities, and under their strategic direction, the local authorities would decide what they want to do.

The Chinese economic reforms started from the end of the Cultural Revolution, which was a disaster, and the Chinese economy was in very bad shape. To survive, to enable the Party to maintain their control over society, they had to find a way to improve the economy.

Right after the Cultural Revolution, the CCP wanted to follow the steps of the reforms that had happened in Central and Eastern European (CEE) Communist countries. So they sent delegates to those countries and invited communists from those countries to China to learn how to reform. But if we compare China and CEE, you’ll find a kind of irony; reforms in CEE all failed, but the reforms in China, which were in part learned from CEE, succeeded. Why?

One-to-one imitation of CEE clearly would not work. But the Chinese bureaucratic hierarchy had been organized in a different way than CEE, than the USSR. It’s different in the sense that the society is divided into regions, and every region is relatively self-contained and self-sufficient. Under that kind of a situation, the CCP has always tried to push their policies, push the Party line through regional competition, through regional experimentation. And actually, the reforms were not completely new in that aspect.

In terms of the strategy of pushing economic reforms, they not only allow but encourage regions to compete in implementing the reform policies. The policies of the CCP are only strategic goals. They have an aim, but there is no detail. All the details, how to implement, how to facilitate, how to realize, have to be discovered by regions through regional competition. So that actually made the regime much more flexible in finding a way out.

If we look at the most important reform measures, all of those were discovered or proposed or initiated by local authorities. Number one was land reform. Number two was the Special Economic Zone policy. Number three was the privatization of state assets.

…from the very beginning, when the private sector was expanding, the Party had already discovered this alarming phenomenon, that although the economy was growing, and thereby saving the regime, party-building was declining.

Privatization had been a taboo because it’s in contradiction to communist ideology—even today, they don’t use the term privatization. But how to deal with state assets when the state firms are in deep trouble? Some cities secretly began privatizing state assets without talking explicitly about privatization. That particular way resolved the local fiscal problems — here I’m talking about the late 1990s.

Around 1996 or 1997, there was an important decision by the central authorities where they allowed all the local authorities to deal with their state assets in an independent way. They didn’t say, “We allow you to privatize.” They only said, “You have more authority in dealing with your assets, and you have full responsibility for your assets.”

Once they allow the localities to have full responsibility, then many local authorities find that the best way to deal with their assets is to sell them. So then you had a huge amount of privatization going on without talking about privatization, and that privatization is sharply different from the privatization in the USSR and in CEE nations.

In the case of China, they found a way to improve the economy through privatization while maintaining authoritarian rule. That’s why I say RADT is more flexible. They sustained totalitarian rule, but at the same time, they could introduce something that looks like a contradiction, that looks impossible.

The past decade plus, after the success of the economic reforms, it seems like things have been moving in the other direction in terms of openness. How do you explain increasing centralization with your framework?

Starting in the 1990s, the private sector was created and grew very fast, although the Communist Party still maintained overall control. But the creation of such a large private sector created a group of entrepreneurs. And these individuals, once they had wealth, gradually civil society emerged. They donated lots of money, and they created NGOs. For example, in the 2008 Sichuan earthquake, there were huge amounts of money poured into relief efforts. Without those NGOs, without those resources and volunteers, the efforts would have been impossible.

In parallel to the creation of the private sector was the rise of semi-autonomous media. These are not state-owned, these are sort of privately-owned media, and this media played a huge role in changing Chinese society. At the start, this independent media was only allowed to cover stock markets, business, and the economy.

But the reality is that business is related to politics. Business is inseparable from Party policies. So these outlets evolved into fully-fledged outlets, although the Party still controlled them, using censorship. But even with censorship, they tried to find leeway to report more.

Since the government’s control had been loosened, the totalitarian nature of Chinese society had been loosened into a sort of authoritarian system. I call that period authoritarian because most of the private firms didn’t have an embedded Party branch. The Party no longer penetrated into the firms. I call the Chinese institution at that stage Regionally Decentralized Authoritarianism.

But that change made the Party worry a lot. The Party would not allow that change to go further. Actually, from the very beginning, when the private sector was expanding, the Party had already discovered this alarming phenomenon, that although the economy was growing, and thereby saving the regime, party-building was declining.

Party-building is an idea created by Lenin, which, according to him, is the lifeline of the party. Party-building has two basic elements. Number one is the recruitment of new party members. Number two is that party branches must be everywhere. If we look at these two aspects in the late 1990s, party-building was declining — not only declining, but declining very rapidly.

In the late 1990s, Jiang Zemin invented a new approach to try to regain control of the private sector, which encompassed hundreds of millions of employees that must be controlled by the Party. This new approach was called the Theory of Three Represents, through which they tried to recruit entrepreneurs into the Party. Most of the entrepreneurs then were not Party members, but they were the owners of their firms.

If they found a way to recruit them into the Party, once you are in the Party, then you are subject to Party discipline. Then you must create a Party branch inside your firm. So then, not only would they solve the problem of recruiting Party members, they also would solve the problem of creating Party branches within the private firms.

To recruit entrepreneurs into the Party, they had to give benefits. Otherwise, the entrepreneurs wouldn’t have any incentive to subject themselves to Party discipline. The benefits included giving them opportunities to have access to bank loans and greater ease in obtaining rights for land, on equal footing with the state firms.

And that approach worked for a while. The downward trend of the Party turned around. But that approach was a band-aid. It was vulnerable, because the private sector had been expanding, and, in terms of employment numbers, had become a majority of the economy.

How could a minority buy out the majority? How could the Party afford to keep on giving benefits to the expanding private sector? Especially given that the overall policy was to consolidate and expand the state sector, and to achieve that, they would have to give benefits only to the state sector, not to the private sector. So if they kept giving benefits to the private sector, then that would contradict their overall aim. That had to be changed if they wanted to keep expanding and consolidating the state sector. And indeed that happened when Xi Jinping became president.

So far I have only talked about the economic side. There is another important aspect about which the CCP has been deeply worried. That is the so-called peaceful evolution and color revolution. Peaceful evolution is a theory that Chinese society can gradually evolve peacefully, with no revolution, from Communist rule into capitalism, where the Party no longer has overall control anymore.

The Party worried about this, and a color revolution would be even more dangerous. The Communists also believed that once civil society became strong enough, and you had semi-independent media becoming fully independent, then China would experience something like the Orange Revolution in Ukraine. They were deeply worried about this. The Chinese Academy of Social Sciences published this warning as early as 2005, and this warning circulated among the Communist elites. So then this is part of the background for the changes, which is about much more than just the personality of Xi.

What are your predictions for the future of China? Based on this historical view and your framework, where do you see it going?

If we look at the institutional genes in today’s China, we find there are two types. On the one hand, we have the old type of institutional genes. The old type is totalitarianism, and that type of institutional genes is still very strong in China, very strong in the sense that the CCP is strong; they control all the land, they control almost all the banks, and they control all the commanding heights of the economy, and moreover, they control propaganda, and it penetrates society.

On the other hand, you have new institutional genes. These new institutional genes are associated with the private sector and the civil society that has been created. So although in the last 10 years civil society has been shrinking, it’s still there, and it plays a role in China. And the semi-autonomous media is still active, although due to censorship and the control of the Party, they are also in decline, not only in terms of size, but also in terms of what they do as media. But still, they are there, and foreign influence is still there.

These new institutional genes also want to survive. They also struggle for their survival. They also try to expand whenever there’s a chance. So you have a fight between these two sets of institutional genes. If we try to predict the future of China, the prediction has to be based upon analysis of this struggle.

…failing in a war will be a big blow to the foundation of the old institutional genes. The old regime could collapse when the war fails, at which point the new institutional genes would play very, very important roles in the recreation of the new regime in China.

So far, it looks like the old institutional genes are overwhelming. They’re strong, which means that while any change of China is determined by the struggles between the two sets of institutional genes, any exogenous shocks would play a big role.

With exogenous shocks, the old institutional genes could be weakened, leading to a changeover between the two forces. But if there is no exogenous shock, then my prediction is that the old institutional genes are going to try their best to sustain themselves.

But the old institutional genes are being gradually weakened because of the poor economy. The Chinese economy has run into deep trouble, and when it runs into deep trouble, that also weakens the foundation of the old institutional genes. That trend is going to erode the power base of the old institutional genes.

My conclusion is that it’s highly uncertain where China is going. In particular, any exogenous shocks are much less predictable. For example, if the CCP launches a war, either over Taiwan or over the South China Sea, then it depends on the reactions of the United States and its allies, another uncertainty. If it’s certain that the United States is going to fight against the CCP with its allies together, then it’s more likely that China’s war will fail. And failing in a war will be a big blow to the foundation of the old institutional genes. The old regime could collapse when the war fails, at which point the new institutional genes would play very, very important roles in the recreation of the new regime in China.

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